Qatar rates cut to bolster credit, bank sector

Central Bank says move is in line with economic developments, future spending
Qatar rates cut to bolster credit, bank sector
Analysts said they saw room for even further cuts by Qatars central bank
By Reuters
Thu 11 Aug 2011 02:13 PM

Qatar lowered key interest rates a day earlier to spur
activity in the local banking sector and revive private sector credit growth,
the central bank said on Thursday.

The world's largest liquefied natural gas exporter on
Wednesday cut both the overnight lending facility and the repo rate to 4.5
percent from 5 percent previously, and reduced the deposit rate to 0.75 percent
from 1.0 percent.

"It comes in line with the economic developments that
the country is seeing and the expected investment spending on infrastructure
projects, and future real estate projects," the central bank said on its
website.

The cuts followed an April policy measure which the bank
said was aimed at stimulating banking activities and boosting lending to the
private sector.

Analysts said they saw room for even further cuts.

"There is definitely scope for a further cut, the
benchmark lending rate is 4.5 percent in Qatar and the benchmark rates in the
UAE and Saudi are 2 percent and in the US it is 0.25," said Khatija Haque,
senior economist at Emirates NBD in Dubai.

"We could see another 25 bps cut in the deposit rate as
well. It depends on how deposit growth develops in the coming months."

Qatar, like all but one Gulf Arab oil exporters, pegs its currency
to the US dollar. The US Federal Reserve promised to keep interest rates near
zero for at least two more years on Tuesday.

"The timing of the cut is also likely to have been
supported by the US intention to keep its federal funds target rate at
exceptionally low levels at least through mid-2013," EFG Hermes wrote in a
note.

EFG Hermes said there was room to reduce the lending rates
from the current 4.5 percent by another 50 bps as inflationary pressure remains
muted.

Private sector credit rose by 15.8 percent year-on-year at
the end of June after 15.0 percent in May, central bank data showed, although
still well below double-digit rates of over 20-40 percent seen in the first
half of 2009.

At 0856 GMT, Qatar's benchmark index dipped 0.2 percent, but
traders said the impact on the spot and currency markets was minimal.

"In the spot market and in the forex swap market there
won't be any impact whatsoever ... There has been no material dealing,"
said Lyndon Loos, head of forex trading for Middle East and North Africa at
Standard Chartered in Dubai.

"The changes to the interest rates affect the onshore
banks, and not the offshore. The reducing of the repo rate means the lending
rate to customers locally becomes cheaper," he said.

Qatari one-year currency forwards were quoted at -20 par,
moving only slightly to the left from -15/+5 before the cuts.

Liabilities of Qatari banks to their foreign counterparts
stood at QR89.2bn ($24.5bn) in June, below QR100.9bn in May, central bank data
also showed.

Qatar, one of the world's top investors through its
sovereign wealth fund and host of the 2022 soccer World Cup, has like the UAE
escaped unrest sweeping through the Arab world.

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